Investment

Analog survival in a digital age

Browsing through my portfolio of equity funds yesterday, looking for opportunities some modest monthly purchases, I quickly realized that we are going through a bullish spell and this might not be the right time to buy. Casting a wider net did not return any products that buck the trend: Finance, Oil, Semi-conductors, Aerospace, Defense, Gold Mines, … are all on an mid-term high. Or did one asset break expectations in a not so obvious way? Let’s take a look at Bitcoin.

From time to time I’d like to launch a thought-provoking idea, just to start a potentially interesting discussion. I haven’t quite figured out the answer to the first one, but here goes. In the light of wildly differing income taxation rates, growing population mobility and decreasing meaning of nationality, are nation states going to start competing for the income tax of the Middle Class, at some point? While this idea might seem out there, just indulge me for one moment and take a ride on my train of thought.

When Deutsche Bank communicated their Belgian promotional offer of a fixed-term DB Invest Plus savings account that guarantees 5% interest (on a yearly basis) in 3 months, I was almost in. This was a promotion (valid until June 24th) I was going to take advantage of, be proud and blog about the fact that I had gotten 5% in a climate of negative interest rates. How good was I? But that climate kept echoing in the back of my mind. Why would a bank offer such a big premium over what the market is offering, when they can borrow money from the ECB at dirt-cheap rates? Who cares though, all deposits have a state-backed guarantee up to € 100,000, right? Well, yes, but the description of the risk involved contains something rather strange. It specifically mentions that in case of bankruptcy, the investor is at risk of losing his deposited funds. The amount that supersedes the government-backed € 100,000, might be converted into shares or be lost altogether. While this is part of the German system of double deposit guarantees, this disclaimer is particularly peculiar, as this promotional opportunity is capped at € 50,000, well below the government guarantee. A short-term promotion, valid for a very limited amount of time, well above other much cheaper options at their disposal, and explicitly mentioning that the investor might lose his funds even though the maximum amount is well below guaranteed deposits? I would almost think that Deutsche Bank is experiencing liquidity problems.

The guys over at Zerohedge just made a very valid point, that slightly scared me. Bear with me, I’ll explain what the article says, in layman’s terms. Technically, the European Central Bank (ECB) prints Europe’s currency, but it does much more than that. By contracting and expanding the money supply (respectively by buying and selling government bonds, or removing and adding money into Europe) it regulates our monetary and economic climate. To get the economy going, the ECB has been injecting money into the system and lowering interest rates. The idea is that the additional money lowers the value of the Euro and stimulates exports. Low interest rates make savings accounts less attractive, chasing savings into consumption and investment. All these effects should kick-start the economy. Over the last months, the ECB has injected 60 to 80 billion Euro into the markets … per month. As a result the ECB expects inflation to get to just 0.2%. This implies one of two things:

If their forecast is accurate: their measures have little or no impact

If their forecast is off: they have no ability to assess the impact of their measures.

With the media going bonkers over the Panama Papers, some aspects seem to be kept out of the argument. The first obvious point is that the source of the documents is still unclear, yet supposed culprits are heavily judged and mentioned with name and surname, even though the use of offshore constructions isn’t necessarily a crime. Tax evasion is illegal, but tax avoidance certainly isn’t. The discussion also seems to be guided towards another round of limitations of personal freedom and loss of privacy. In spite of the use of the American monetary system, there is no talk whatsoever about any Americans being involved. Smoking gun? Let’s have a look at this International Consortium of Investigative Journalists in the days to come.

Valuable investment advice from Warren Buffet and John Boggle (yes, I’m paraphrazing): as long as you’re relatively far away from your retirement age, don’t make any rash emotional decisions based on what you read about the stock market. That’s just noise, pay no attention to it. Keep on buying stocks/funds at the same pace. Volatility is part of the market and is not an incentive to sell, but an opportunity to buy at a cheap price.

The biggest returns are to be found in the Emerging Markets, Asia and Europe, with the US to be avoided. Predictions like these are to be treated with caution … but remember: Economics is the only science where predictions influence the final outcome.

Where Russian investments remain a gamble due to mixed forecasts and analyses, there seems to be gaining momentum for a bright economic outlook for India. Is the time right to take a tentative position on India?